Dealers Unwind Carry Trades As Dollar Rallies

Dealers were unwinding carry trades in which market participants had sold off the U.S. dollar and bought the higher-yielding Mexican peso because the greenback appreciated.

  • 25 Mar 2005
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Dealers were unwinding carry trades in which market participants had sold off the U.S. dollar and bought the higher-yielding Mexican peso because the greenback appreciated. The dollar rallied against the peso last Monday in anticipation of the Federal Reserve Board's interest rate hike to 2.75% from 2.5%, but declined slightly Tuesday after the U.S. Labor Department reported inflation rose by 0.4% from last month.

Traders were chasing the spot market last week, where the dollar rose to about MXP11.22 Monday, up from about MXP10.98 two weeks before, while one-month implied volatility rose to 8.2% from 7%.

Michael Gavin, head of Latin America economic research with UBS Securities in Stamford, Conn., said the U.S. Treasury market was driving the activity, with yield on 10-year Treasury notes rising two weeks ago to almost 4.6% from 4% in early February. Last week yields on the 10-year bonds reached their highest level since June at 4.65%.

A trader said volumes were light due to the upcoming long weekend. The previous week speculative players had boosted volumes through purchasing short-dated dollar calls and peso puts after dealers were caught with short option positions in a strengthening dollar environment.

  • 25 Mar 2005

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 317,691.74 1201 8.90%
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3 Bank of America Merrill Lynch 285,088.11 991 7.99%
4 Goldman Sachs 217,749.25 714 6.10%
5 Barclays 209,291.80 811 5.87%

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Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 32,320.82 147 6.67%
2 Deutsche Bank 32,259.50 104 6.66%
3 Bank of America Merrill Lynch 28,890.43 85 5.96%
4 BNP Paribas 25,663.29 144 5.30%
5 Credit Agricole CIB 22,617.86 130 4.67%

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Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 18,160.85 71 9.15%
2 Morgan Stanley 15,215.44 76 7.67%
3 UBS 14,195.29 55 7.15%
4 Citi 14,014.57 86 7.06%
5 Goldman Sachs 12,113.98 67 6.10%